The Re-Election Budget 2019

Interim Finance Minister (FM), Piyush Goel, standing in for the ailing Arun Jaitley, presented the NDA- II government’s final budget, of the current term. “Popular & not a populist” budget averred his colleague, Commerce Minister,  Suresh Prabhu while former Finance Minister, P Chidambaram (PC), played with words, calling it a “Account for vote” & not a ‘Vote on Account” - a thinly veiled criticism on an “interim budget” announcing  poll sops, masquerading as a policy statement, that could not wait for the formation of a new govt.; however, the 70,000 crore farm loan waiver announced, in the 2009 budget, by  PCs UPA govt. could legitimately invite a return jab. “Machiavellian budget presented by a “vulnerable govt. opined “Michael Kugelman of the Wilson centre.

The FM announced that the fiscal deficit (FD) has been pegged at 3.4% for FY 19 & the next with Revenue Deficit (RD) at 2.2%. Credit rating agencies are not amused at the frequent deviations from the glide path of achieving 3% FD by 2008- as mandated by the FRBM Act of 2003 – first due to the financial stimulus undertaken to manage the 2008 financial crisis & later due to political expediency.  All governments – UPA or the NDA - have resorted to creative accounting that include off balance sheet financing that understates govt. debt, roll over of subsidies etc. leading one to borrow the former Finance Secretary Geethakrishnan’s word “Fudget” to describe the Budget;  Food Corporation of India has unpaid bills of over 1 Lakh crore. Sajid Chinoy, of JP Morgan, has calculated the fiscal deficit of the centre, states & the off balance sheet items to be about 8.2% of GDP for 2017-18. This combined with the muddled nos. emanating from the CSO (Central Statistical Organization) could put India in the elite league of China, whose official economic nos. are always taken with a pinch of salt. Liberating institutions from becoming “caged parrots” is thus essential.

The Budget At a Glance

A-Actual, RE Revised Estimate, BE-Budget  Estimate				Growth
All Figs in Lakh Crore Rupees	FY 2018 A	FY2019 RE	FY2020 BE	FY2019	FY2020
Revenue Receipts	14.35	17.30	19.78	20.5%	14.3%
Revenue   Expenditure	18.79	21.41	24.48	13.9%	14.4%
Revenue Deficit	4.44	4.11	4.70
Revenue Deficit %	2.6%	2.2%	2.3%
Capital Receipts	7.07	7.28	8.07	2.9%	10.9%
Borrowings	5.91	6.34	7.03	7.3%	10.9%
Capital Expenditure	2.63	3.16	3.36	20.2%	6.3%
Total Expenditure	21.42	24.57	27.84	14.7%	13.3%
Recovery of Loans + Other Receipts	1.16	0.93	1.03
Fiscal Deficit	5.91	6.34	7.04
Fiscal deficit %	3.5%	3.4%	3.4%
Interest Payments	5.29	5.88	6.65
Primary Deficit	0.62	0.47	0.39
Primary Deficit  %	0.4%	0.3%	0.2%
GDP	169	187	207

The takeaways

(a)The budget projects an anaemic capital expenditure growth of 6.3%; 70% of the 3.36 lakh crores capital budget is spent in three areas: Defence (1.03L Cr); Railways (0.64L Cr), Roads & Bridges (0.68L Cr).

(b)Borrowings pegged at over 7 lakh crores, in FY 2020, prompted a sell-off of treasury bills by financial institutions, fearing a “crowding out”  effect leading to a rise in gilt yields from about 7.26% to 7.38%. With an “expansionary” fiscal policy, RBI may be forced to adopt a “neutral “monetary policy without any change in Repo rate – a “Long Pause” - despite a chorus for a rate reduction.

(c )Total tax filers between 2013-14 & 2017-18 shot up from 3.79 crore to 6.85 crores while personal income tax filings increased from 3.31 crores to 5.44 crores with  govt. claiming it as a consequence of Demonetization.  Since the govt. has mopped up a gross of Rs 8.74 Lakh crores & a net of Rs 7.44 Lakh crores - post adjusting for refunds, till Dec 2018 - & achieved a  gross growth of 14.8% in corp. Tax & 17.2% in personal income tax – it is conceivable that direct tax projection could be met; the same cannot be said about indirect taxes. The FD, thus would surely be higher than 3.4%.

	Figs in Lakh crores (A-Actuals, RE-Revised estimate, BE-Budget estimate)
Revenue Receipts	2014-15 A	2015-16 A	2016-17 A	2017-18 A	2018-19 RE	2019-20 BE
Corporate Tax	4.28	4.53	4.84	5.71	6.71	7.6
Income Tax	2.58	2.87	3.49	4.08	5.18	6.07
Other Taxes				0.1
Total Direct Taxes	6.86	7.4	8.33	9.89	11.89	13.67
Revenue Receipts Growth %
Corporate Tax		5.8%	6.8%	18.0%	17.5%	13.3%
Income Tax		11.2%	21.6%	16.9%	27.0%	17.2%
Other Taxes
Total Direct Taxes		7.9%	12.6%	18.7%	20.2%	15.0%

(d)While the GST receipts are growing at 9%, the govt. projects a revenue growth of 21%, in the budget, which needless to say is unachievable. Likewise, the “Union Excise” budgeted at 2.6 Lakh crores, accruing from petroleum, is unlikely to be achieved if the product is brought under GST.

	Figs in Lakh crores (A-Actuals, RE-Revised estimate, BE-Budget estimate)
Revenue Receipts	2014-15 A	2015-16 A	2016-17 A	2017-18 A	2018-19 RE	2019-20 BE
Central GST	1.88	2.88	3.81	2.03	5.03	6.1
UT GST				0.01	0.03	0.03
IGST				1.77	0.5	0.5
GST				0.63	0.9	1.01
Union Excise				2.59	2.6	2.6
Service Tax	1.68	2.11	2.54	0.81	0.09
Taxes excluding Customs	3.56	4.99	6.35	7.84	9.15	10.24
Customs	1.88	2.1	2.25	1.29	1.3	1.45
Total Indirect taxes	5.55	7.11	8.78	9.13	10.45	11.69
Revenue Receipts
Central GST						21.27%
Taxes excluding Customs		40.17%	27.25%	23.46%	16.71%	11.91%
Total Indirect taxes		28.11%	23.49%	3.99%	14.46%	11.87%

Election Budget

The “Modi” chorus in Parliament, after the announcements, by the ruling coalition members is a reflection of their belief that the “political budget” laced with freebies is sufficient to entice the electorate to re-elect the coalition in the general elections, tentatively poised for May 2019. The 3 large population segments targeted - accounting for about 25 crore citizens or about 125 crore if family members are counted too- are as follows

Agriculturalists: The budget announced Rs 6000/- to be transferred vide DBT (Direct Benefits Transfers) into the bank account of the 12 crore small & marginal farmers – defined as those having less than 2 hectares or 4.94 acres of land - in 3 instalments of Rs 2000/- each.  The first instalment shall hit the bank accounts before Mar 31^st 2019, lending itself to criticism that it is a bribe paid from the public exchequer for securing a private vote for the BJP.

An amount of Rs 20,000 cr has been budgeted in the current year & Rs 75,000 crores for the next, effectively increasing the fiscal deficit by 0.1% this year & 0.3% the next. Critics acknowledge that the farm distress is a reality & an intervention was necessary but criticise govt. action on following grounds:

(1)Telangana & Odisha have better income support schemes. Telangana Government’s “Ryuthu Bandhu” scheme arranges for the transfer of Rs 8000 per acre, across 2 instalments - coinciding with the Rabi & Kharif crop sowing season. Odisha’s KALIA scheme (Krushak Assistance for Livelihood & Income Augmentation) assures financial assistance of Rs 10000 per family to vulnerable cultivators & landless agricultural labourers – either due to old age, disability, disease etc.

 Rahul Gandhi lambasted the scheme since it translates into a paltry Rs 500/- per month or Rs 16.67 per day or as Yogendra Yadav averred “less than Rs 3.5/- per a family member, per day,  that cannot buy even a cup of tea.”

 (2)While the economic situation of landless labourers, share croppers & tenant farmers is worse off than small & marginal farmers, they have been excluded from the scheme. Under KALIA though, financial assistance of Rs 12500 is provided to each landless agricultural household for funding agricultural allied activities like goat rearing units, duck units, fishery kits for fisherman, mushroom cultivation, bee keeping, mini layer units etc.

Salaried Employees: BJP is traditionally well entrenched in urban areas due to the support of the middle class through a measured outreach program strengthened by articulate spokespersons on national media. The Modi govt. has kept this segment in good humour, throughout this term, & strengthened the relationship further by offering an income tax rebate of Rs 12500 under sec. 87A. While the benefit is meant to target the small tax payers in the 2.5 - 5 Lakh slab, a good tax planner can help a citizen up to a salary of 8.15 lakhs or beyond (if he avails of an additional housing loan & interest payment thereof) to pay zero tax. About 3 cr tax payers shall benefit under a giveaway of Rs 18500 cr.

All Figs. in Lakhs of rupees	Earlier	Now	Explanation
Salary	8.15	8.15
Standard Deduction	0.4	0.5
Deductions under  Sec 80C	1.5	1.5	EPF. PPF with a 15 year lock in, Tuition fees, Housing Loan principal, NSC,ELSS with a 3 year lock in, Senior Citizens Savings Scheme, Life Insurance premium, Bank FDs for 5 years & above, 5 year term deposits with post offices, ULIPs with a 5 year lock in, Sukanya Samriddhi scheme, Stamp Duty & registration charges, School fees for kids
New Pension Scheme Sec 80CCD(1B)	0.5	0.5
Medical Insurance for Family Sec 80D	0.25	0.25	Family is self, spouse & children; if one of the family members is over 60 years the deduction can go up to Rs 30000. If one of the parents is over 60 another Rs 30000 can be claimed; thus a total of Rs 60,000 can be claimed as deduction
Medical Insurance for elderly parents: Sec 80D	0.3	0.3
Deduction on Interest income: 80TTA	0.1	0.1	While TDS deduction was applicable on interest income over Rs 10k which has now been increased to Rs 40K, deduction is retained at Rs 10,000
Total Taxable Income	5.1	5
Tax	0.145	0.125
Education Cess 4%	0.0058
Rebate under Rec 87A		0.125
Total Taxable Income	0.1508	0

Prior to the scheme announcement  super senior citizens -aged above 80 years - & senior citizens –aged between 60 to 80 years - were exempt from  tax upto an income of 5 lakhs & 3 lakhs respectively; the differential tax slabs based on age is thus effectively removed. 

The other benefits

(a)Notional rent imposed on a 2^nd dwelling has been revoked to encourage the upper middle class to make an additional investment in housing;

(b) No capital gains, upto 2 crores, imposed if house sold & re-invested; instead of restricting benefit of reinvestment to one new house, benefit extended to 2 houses

Both the benefits for the farmers & the small tax payers – with amounts ranging from Rs 6000 to Rs 12500 would boost consumption; stocks of consumer staples & textiles would see a spurt. Irrational exuberance of discretionary consumption auto stocks especially 2 wheelers is likely. Burdened with huge inventory real estate stocks, ideally, should  not see as much of an interest as banks, housing finance stocks, paints  & home furnishing stocks . 

The urban middle class will thus root for the Modi re-election.  

Unorganized workers: India has about 42 crore workforce in the unorganized sector of the total of 50 crores. For workers with a monthly income under Rs 15000 per month, a pension of Rs 3000/- per month on retirement, at age 60 years, has been announced. About 10 crores workers are expected to avail of the scheme by contributing Rs 55, per month, if he joins scheme at 18 years & Rs 100/- if at 29 with a matching contribution from the govt.  An amount of Rs 500 cr has been committed in the budget. Just like the Amma canteen in Tamil Nadu or Ayushman Bharat – the health insurance scheme launched by the govt. – this scheme, despite low spends, has tremendous propaganda value; after all the pension payment for a worker aged 29 today would start off only after 31 years in 2050.

Workers registered under EPFO (Employee Provident Fund Organization) are paid a minimum pension of Rs 1000 per month today& the above announcement could trigger a demand from them to at least match the benefit promised to unorganized workers.

Gratuity limit has been increased from 10 lakhs to 20 lakhs enhancing goodwill.

Conclusion  

Modi’s foes would chafe at his disdain for institutional integrity & lack of respect for conventions.  But there is no denying that he is the sharpest political mind that India has seen for many years. With a meagre spend of Rs 20,000 crores & a promised spend of about Rs 94000 crores (Rs 75000 crores for farmers, Rs 500 crores unorganized workers & Rs 18500 crores for salaried employees) he has captured the mind space of 12 crore farmers, 10 crore unorganized workers & 3 crore salaried & five times the no. of you include the family members of the beneficiaries. If he hasn’t yet, his untiring grass root cadre will do the job or he will, with his uncompromising direct communication style. “Modi Brahmastra” sing his admirers & “jumla” cry his opponents but he could win at the hustling, unless leaders on the other side of the aisle display imagination & aptitude to design a fiscally prudent UBI (Universal Basic Income).

Year 2018: Scientific discoveries

The year gone by, suffered vide the loss, on its timeline, of the modern Einstein – Stephen Hawking – whose significant contributions in terms of bringing together quantum mechanics & Theory of Relativity, understanding black holes further & vide the “M-Theory” postulating the “Theory of Everything” - set a very high bar difficult to be outclassed; likewise, the untimely deaths of Ruth Gates - who contributed substantially to the field of corals & space scientist, Constance Adams.  Other notable losses include Paul Allen who co-founded Microsoft with Bill Gates. Koko- the gorilla who was taught 1000 hand signs by animal psychologist, Francine Patterson & understood 2000 English words, helped humans understand the cognitive abilities of apes, died in 2018.  On a happier note, though, there were significant advancements, in the fields of space, medicine et al.

Healthcare

·         Gene Editing: In Oct 2018, Chinese scientists announced success in making same sex mice couples give birth to pups, using gene editing & stem cells; the pups born of two moms had their own litter while pups born from two papas died within 48 hours indicating the complexity of the process & the likely way forward in subsequent advanced research. While a few vertebrates like frogs, lizards & fish can have progeny without genetic input from a male, it is not the case with mammals with a placenta & that makes the above advancement significant.

Likewise, scientist He Jiankui claimed to have used a cut & paste DNA editing technique, called CRISPR, to produce monkey twins immune to HIV. While Dolly- the sheep & other pigs, mice, dogs, cats, and cows were cloned earlier, cloning of primates – a historical challenge- has now been surmounted.

Gene editing has unintended side effects – altering sequences that were not meant to be altered - & these could pass on from one generation to the next effecting development of traits, diseases etc. thereby raising significant ethical questions. The positive of the research, though, is that same sex couples can move away from adoption to have their own genetic offspring & claim pregnancy assistance on par with heterosexual couples.

·         Lab Made Sheep-Human Hybrids & Creating Human Organs: in 2017, scientists grew human-pig hybrid cells & followed it up with sheep embryos with 1% human cells in terms of count, in 2018. Human-animal hybrids embryos could help grow organs, in a lab setting, to be used, later, for transplants; however this necessitates increasing the % of human cells in the animal embryo, significantly, to reduce risk of organ rejection on transplantation. The research, though cutting edge, is underfunded due to the ethics issues involved.

·         Discovery of a New Organ: The NYU school of Medicine in Mar ’18 discovered a new organ - interstitium - previously thought to be a dense layer of tissues, but classified by NYU researchers as a tiny channel that connects to the lymphatic system; the new “organ” is made up of fluid filled channels, though which cancer cells could spread to the rest of the body. Peer review of the research is still underway.

·         Cancer Treatment: A major leap was achieved in cancer treatment in terms of targeting tumours using drugs, nano-robots & regulating food intake. Drug Maker Loxo Oncology has launched a drug Vitrakvi which targets genetically similar features or biomarkers & is site agnostic. This combined with medical nano robots – 1000 times smaller than human hair – which can be IV injected to attack tumours, by cutting off of fresh blood supply causing the cells to shrivel & die, is a giant leap in healthcare; no damage was done to other cells of the body. Patients put on low carb- high fat ketogenic diet while administering PI3K inhibitor - designed to kill tumours – too has shown good results.

Researchers at Johns Hopkins Sidney Kimmel Cancer Centre discovered a blood test that could identify eight common cancers: lung, breast, colon, pancreas, liver, stomach, ovary, and oesophagus. The test was successful, about 40% of the time, in patients with Stage 1 cancer & offers hope for early detection.

·         Innovative Stem cell Research: Multiple sclerosis (MS) is a chronic disease that affects the brain, spinal cord, and immune system; scientists attempted to destroy the immune system vide chemotherapy & then repair the immune system using stem cells - essentially rebooting the blood & bone marrow & were successful with only 1% of the patients displaying relapse after treatment. Similarly, two patients with age related macular degeneration – whereby they cannot see faces or read – when treated with a stem cell patch, implanted on the damaged portion of their eyes, had their eyesight restored. Fine tuning of this process could make it as economical, as cataract surgery, going forward.

·         Transferring Memory, Cure for Alzheimer & Reverse Aging: Neurobiologist Glanzman, in May’18, announced the results of his research predicated on the assumption that memories that cause defensive reflexes might be coded in the RNA & not in the brain. He implanted wires into the tails of sea snails – called sea hares - & shocked them, whereby they were sensitized to contract their gills when prodded into a fleshy part of their body, called the siphon. He then transferred RNA from these hares to ones not sensitized & the latter group, on prodding, displayed a similar response of gill contracting not displayed when RNA was transferred from non-sensitized hares.

Scientists at the Gladstone institute extracted stem cells from Alzheimer patients & healthy volunteers & using these to create neurons or brain cells found the patients having 2 copies of the apoE4 gene which caused the disease via increased production of the neuron damaging protein. They erased the same in the damaged neurons ensuing cells live longer & healthier. The research is promising & could lead to a cure for the disease in the years ahead.

Scientists from Boston led by Dr David Sinclair found a molecule NAD in mammals that depletes with increasing age inducing illnesses. The team boosted NAD levels in older mice, vide a dietary supplement, which made cells sound again & improved health. They now intend to replicate their experiments on humans & if successful could help find cure for Alzheimer cancer etc.

·         Lab Meat without Cruelty: While lab meat from animal cells is produced by using fetal bovine serum that comes from slaughtered cows, a Dutch start-up, Meatable claims that they have solved the “cruelty” problem by using stem cells from the animal’s umbilical cords.

·         Male Contraceptive Gel: A shoulder rub gel, to be used once a day as a male contraceptive, has been invented & is under a year-long trial. This will serve as an alternative to condoms & vasectomies. Further, researchers at the University of Washington have announced a new male birth control pill –Dimethandrolone Undecanoate (DMAU); testosterone used in past pills caused liver problems & had to be consumed twice daily unlike the current invention, where one would suffice; it has a side effect of a mild increase in cholesterol though.

Space:

·         Mars Exploration: Space X launches its 27 engine reusable Falcon Heavy rocket with reusable boosters with Musk’s Red Tesla Roadster, with a dummy driver, as payload flying past Mars.

Meanwhile, in July’18, Italian scientists announced the possibility of 12.4 miles wide & 3 feet deep underground lake, of Liquid water, at the poles of planet Mars. The camera, HiRise, aboard the Mars reconnaissance orbiter, found subterranean ice in 8 different regions of the planet, at 55-60 degrees north & south of the equator, at depths of 1 to 100 metres. The ice is pure & could be potentially mined to support life forms for drinking, growing crops or for extracting hydrogen as fuel - in the event of colonization of the planet. Most Mars missions restrict themselves to landing sites 30 degrees on either side of the equator where climate is more warm; it is likely that in these regions ice could be found at greater depths making it harder & costlier to extract; NASA Mars 2020 rover & the European Space Agency rover, equipped with ground penetrating radar & drills, could explore the equatorial regions further.

NASA’s Mars rover Curiosity discovered organic matter, on a 3 billion year old mudstone, in crater Gale, which could have been created biologically - indicative of the building blocks of life - or naturally – due to a geographic process. Further research is needed to arrive at firm conclusions but possibility of life & availability of water on Mars are significant advancements of our understanding of the Red planet.

·         Gene Mutations in Space: Astronaut Scott Kelly spent a year in space while his Twin, Mark, was left on earth & NASA’s research on comparison of these two sets of identical DNA revealed that 7% of the former's gene expression hasn’t returned to the Earth normal, perhaps as a consequence of the body’s response to the stress of living in space, which could have a lasting impact on his immune system & retinas. Scott emerged 2 inches taller - due to the “stretching of the spine”. His telomeres – caps at the end of chromosomes – became longer while in space but retracted to original lengths once home; generally telomeres get shorter with age but here it effected in reverse. Scott’s genes showed both increase & decrease in the levels of methylation – genes getting tuned off & on – indicating that genes are sensitive to changing environment whether on Earth or in Space.

Others:

·         New Measure for Kilogram: A hunk of platinum iridium called “Le Grand K” used to measure Kg since 1889 was replaced, in Nov’18, of the Plank Constant (h) which is based on the amount of electricity needed to counteract a Kilogram’s force.

·         Measure to make seas Plastic Free: Dutch, Boyan Slat, invented & launched a plastic trapping pipe to suck out plastic debris in the seas, which otherwise is killing sea turtles & other life forms.

·         Grow Vegetables in Antarctica: German scientists announced, in April’18, that they grew vegetables – salad greens, cucumbers & radishes - in Antarctica in a greenhouse – even as outside temperatures dropped to minus 4 degree F, in the absence of earth & sun & plan to replicate the same going forward to grow vegetables in space-crafts

Conclusion

Overall, 2018 was an exciting year & one hopes that 2019 shall help the human mind conquer new frontiers